Magazine May 4, 2009, Issue

Why Constitutions Matter

(Fred Prouser/Reuters)
Examining the legal root of the financial crisis

The current financial meltdown has exposed the myth that our nation’s sophisticated, multilayered scheme of government regulation immunizes us from systemic failure. We are realizing that shocks, from both home and abroad, will exact their toll. What is less commonly appreciated is that the very political institutions on which we depend count as a structural cause of much of our current distress. In many cases, the root of our problems lies in the legal restrictions that block the movement of prices and wages in financial markets. It is just this sort of folly that has embroiled the Obama administration in

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Richard A. Epstein — Mr. Epstein is a professor of law and director of the law-and-economics program at the University of Chicago. He is also a senior fellow at the Hoover Institution, a visiting professor at NYU Law School, and the author of The Case Against the Employee Free Choice Act (Hoover Press).

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